THE LAW DOES NOT RECOGNISE THE POSITION OF CHAIRMAN/MD/CEO FOR LIFE

U. O. O. (Nig.) Plc v. Maribe Okafor [2020] 11 NWLR (Pt. 1736) 409

The Story

The facts of the above case are quite interesting. A man, the Late Nze Uche Okafor, had seven wives, and fifty-five children. Before his death, he tendered his resignation as the Chairman/Managing Director/Chief Executive of the Company to the Board of Directors and appointed his son, Edozie Uche Okafor, as his nominee for the positions. At a subsequent general meeting, it was resolved that the Late Nze Okafor be retired as the Chairman/MD/CEO on grounds of old age and that his son, Edozie Uche Okafor, should step into his shoes and that the necessary filings be done at the Corporate Affairs Commission (CAC) to reflect the development. By paragraph 80(d) of the Articles of Association, it was stated that Edozie Uche Okafor was made a life director and Chairman/MD/CEO for life.

About six months later, some directors and shareholders of the Company sought to disinvest from the Company. An Asset Valuation Committee was set up to value the assets/shares of the Company. About two years later, the Company held an Annual General Meeting where the issue of the value of the Company’s assets/shares was to be discussed. The meeting became rowdy at some point due to disagreements that ensued. Edozie Uche Okafor left the meeting. The shareholders moved a motion, removing Edozie Uche Okafor as Chairman and appointed one of them, Maribe Okafor (1st Respondent) as the Chairman.

The following were the allegations of misconduct leveled against Edozie Uche Okafor: secret amendment of the Company’s Memorandum and Articles of Association by Edozie Okafor without the approval or knowledge of the shareholders; his refusal to make copies of the amendments available to the shareholders; his highhandedness and running of the Company as his private business; reconstitution of the Board of Directors without approval; gross financial misconduct, embezzlement and misappropriation of appellant’s funds; illegal sales of Company’s assets and diversion of the proceeds for his personal use; refusal to declare dividends and give annual financial reports of the Company as required by law.

Edozie Uche Okafor was aggrieved. He commenced an action in the name of the Company at the Federal High Court, Lagos against the Respondents (named shareholders and directors of the Company) challenging his removal for lack of fair hearing. He also contended that by virtue of paragraph 80(d) of the Articles of Association of the Company, he was made a Life Director and Chairman/MD/CEO for life. The trial Court dismissed his case and granted the counter-claim of the Respondents who had sought judicial assistance to protect their investments in the Company. Edozie Uche Okafor’s appeals up to the Supreme Court failed.

On whether Edozie Uche Okafor could validly be a Chairman/MD/CEO for life based on the provisions of the Memorandum and Articles of Association, the Supreme Court said, never! Mary Peter-Odili, JSC explained:

The strength of the argument of the Appellant is that Nze Edozie Okafor was Board Chairman for life under Clause 8(d) of the aforesaid Memorandum and Articles of Association which purported to make Edozie Okafor “Managing Director/Chief Executive of the Board of Directors for Life”, which is inconsistent with the provisions of the Companies and Allied Matters Act. Such positions are not recognized under the Act and so are therefore void, ineffective and unlawful. The law only recognizes the position of a “Director for Life” who can still be removed or rejected by the members at an Annual General Meeting. See Sections 255, 248 and 262 of CAMA [1990]. This is in accord with the decision of the Lower Court that these are elective offices and positions. A “Life Chairman of the Board of Directors or Managing Director for Life” are not lawfully sustained because the powers to elect a Chairman or MD and fix/determine the period for which he is to hold office are by statute, conferred on the directors or by members at an Annual General Meeting. See Section 263 of CAMA [1990]. It needs be stated that any clause in the Memorandum and Articles of Association which purported to make a person a “Managing Director for Life” or “Board Chairman for Life” contrary to the express provisions of the law, is an illegal contract and therefore unenforceable. Such clause is ab initio illegal and does not require a formal amendment to deprive it of the force of law. The Court does not enforce an illegal contract and one cannot place something upon nothing or rely on an illegality to enforce a purported right. See UAC v. Mcfoy (1962) AC 152.

Meanwhile, the most important issue the Supreme Court was called upon to determine was whether the case was competent. Recall that Edozie Uche Okafor filed the action challenging his removal in the name of the Company and not in his personal capacity. This appeared to be the fatal error that demolished his case. The Supreme Court was of the view that the proper party to complain about the removal of Edozie Okafor is Edozie Okafor himself and not the Company. Augie, JSC made an elaborate explanation thus:

The question in this case boils down to whether the Appellant Company itself was denied fair hearing when the said Edozie Okafor was removed as its Chairman? The Court of Appeal made two potent findings that provide answers to this question – “there is no injury suffered by the Company”; and – “what is involved in this Appeal is not directly about assets of the Company but the self-serving interest of the said Nze Edozie Okafor.” What could be clearer? As the Respondents rightly submitted, the first relief sought in the Amended Statement of Claim filed at the trial Court shows clearly that the person actually aggrieved by what they did is Nze Edozie Okafor and not the Appellant Company. The said Nze Edozie Okafor, who replaced the founder of the Appellant Company, was removed as the Chairman of the Company, by the Respondents, who are Shareholders of the same Company. The Appellant Company is therefore the umbrella that covers both the Chairman/MD/CEO of the Company and the Shareholders. How can the quarrel between the Parties under the said umbrella, constitute an injury to the Appellant Company, and in what way did the removal of Nze Edozie Okafor as Chairman by the Respondents, amount to denial of fair hearing to the Appellant Company itself? These are questions looking for answers that cannot be found because there is nothing to connect the Appellant Company to the wrongful act complained of by Nze Edozie Okafor, which led to the Suit filed at the trial Court, in the name of the Appellant Company. As I said, a matter cannot be heard on its merits unless there is a cause of action, and the Plaintiff has the right to bring the action – Utih v. Onoyivwe (supra). In this case, the Appellant Company has no cause of complaint; it did not suffer any injury when the said Edozie Okafor was removed as its Chairman by its Shareholders; and the action was wrongly instituted in its name at the trial Court. So, without a cause of action, it is not a proper Party before the Court. It goes without saying that without the proper Party before it, the trial Court had no jurisdiction to entertain the action taken out by Nze Edozie Okafor in the name of the Appellant Company and the Court of Appeal was right to hold as follows in its Judgment – At the time the action in this Appeal was taken out in the Lower Court, it was not authorized by the proper organ of the Appellant Company to do so, and in effect, therefore, it vitiates the competence of the action and the jurisdiction of the Lower Court and the Court of Appeal to adjudicate. The end result of the foregoing is that this Appeal totally lacks merit and it is hereby dismissed.

Evidence revealed that Edozie Uche Okafor had called a meeting of the Board of Directors to ratify his act of commencing the suit in the name of the Company. This was unable to save the situation as the Supreme Court, per Mary Peter-Odili, JSC, was of the view that:

Nze Edozie Okafor, having been removed by the Appellant’s shareholders as the Chairman of the Board of Directors at the AGM on 9/3/2007 lacked the capacity or locus standi to summon and preside over any subsequent meeting of the Board as Chairman until he had successfully challenged that removal. See Longe v. FBN Ltd (2006) All FWLR (Pt. 313) 46 at 71.

The Appellant had also raised an issue of the impropriety of the appointment of Maribe Okafor as Chairman of the Company, he not being a director of the Company. The Court found and held that, that argument is not sustainable in the light of the provisions of Section 240 (2) of CAMA 1990 which provides that a member can be chosen as Chairman at an Annual General Meeting if no director was present. In the instance case, there was no evidence that a director was present when majority of the Shareholders elected Maribe Okafor as Nze Edozie Okafor voluntarily left the meeting.

Conclusion

We have seen small companies (typically one/two persons companies) run by the founders throughout their lifetime. This reality does not mean that the founders of these companies have acted illegally. It is safe to conclude that attempt to make provisions in the Memorandum and Articles of Association for the position of Chairman/MD/CEO for life should be avoided in the light of the above case.

We must bear in mind that the separation of the position of board chairman from that of the MD/CEO is consistent with the highest standards of corporate governance best practices approved in 2018 by the Financial Reporting Council of Nigeria (‘FRCN’ or ‘the Council’), pursuant to the powers conferred on the Council by the FRCN Act. The following entities are mandated to comply with the principles provided in the Code:

  1. All public companies whether they are listed or not;
  2. All private companies which are holding companies of public companies or other regulated entities;
  3. All concessioned or privatised companies; and
  4. All regulated private companies being private companies that file returns to any regulatory authority other than the Federal Inland Revenue Services (FIRS) and the CAC.

A number of small businesses may still be in the position where the governance structure revolves around their founders. As the businesses begin to grow and new shareholders admitted, it may become important to also improve on the governance structures of their companies to ensure compliance with applicable laws. 



Stephen Azubuike
Author: Stephen Azubuike
Stephen is a lawyer with expertise in Commercial Dispute Resolution and Technology Law practice. He is a Partner at Infusion Lawyers. He has successfully argued cases from the High Courts of various jurisdictions to the Appellate Courts on behalf of financial institutions, other corporate bodies and multinationals. He has worked with a number of startup tech companies. He tweets @siazubuike.

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